Computation of co-variance between two stocks

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Computation of co-variance between two stocks

Given the returns and probabilities for the three possible states listed here, calculate the covariance between the returns if Stock A and Stock B. for convenience, assume that the expected returns of stock A and Stock B are 11.75 percent and 18 percent , respectively.

 

Probability  

Return(A)     

Return(B)

Good

0.35

0.30

0.50

OK

0.50

0.10

0.10

Poor

0.15    

-0.25

-0.30

Reference no: EM1312407

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